Bitwise chief investment officer Matt Hougan has stated that Strategy (MSTR) will not be compelled to sell its Bitcoin holdings to maintain financial stability, even if its share price experiences a significant decline. Hougan dismissed claims to the contrary, asserting they are "just flat wrong."
Hougan explained in a note on Tuesday that a drop in MSTR's price below its net asset value (NAV) would not necessitate a sale of its Bitcoin. He highlighted the unwavering conviction of chairman Michael Saylor in Bitcoin (BTC) as a key factor.
He further elaborated on the potential market impact, stating, "It would indeed be very bad for the Bitcoin market if MSTR had to sell its $60 billion of Bitcoin in one go—that’s akin to two years of Bitcoin ETF inflows." However, Hougan sees no immediate pressure for such a sale, citing that the company has no debt maturing until 2027 and possesses sufficient cash reserves to cover interest payments for the foreseeable future.
Concerns about Strategy potentially liquidating its substantial Bitcoin holdings emerged after the company's CEO, Phong Le, indicated last week that it might consider offloading some of its stash as a "last resort" if Strategy’s market value fell below the value of its Bitcoin assets.
Le had stated that if Strategy's financing options were to diminish under such circumstances, it would be justifiable to sell some Bitcoin to preserve the firm’s "Bitcoin yield per share."
Strategy is also navigating a prolonged downturn in the cryptocurrency market, which has led to a decrease in its share price. Additionally, the company faces the possibility of exclusion from the MSCI stock market index.
Strategy Can Weather the Storm, Hougan Asserts
Hougan believes Strategy's current financial position is not dire enough to warrant selling Bitcoin. He pointed out that with Bitcoin trading around $92,000, it is "24% above the average price at which Strategy acquired its stash ($74,436)."
He further explained that the company has considerable flexibility even if its stock price drops below its NAV. Strategy's financial records indicate no immediate pressures that would compel it to sell its Bitcoin holdings.
"MSTR has two relevant obligations on its debt: It needs to pay about $800 million a year in interest and it needs to convert or roll over specific debt instruments as they come due," Hougan noted.
"The interest payments are not a near-term concern. The company has $1.4 billion in cash, meaning it can make its dividend payments easily for a year and a half," he added.
Over the last 30 days, MSTR's stock has seen a decline of 24.69%, closing Friday's trading session at $186.01.
A contributing factor to this downward price pressure may be the announcement made in October by the stock market index MSCI. MSCI indicated that it may exclude digital asset treasury companies whose balance sheets hold more than 50% in crypto assets.
Such an exclusion could compel index-tracking funds to divest their holdings, potentially placing additional pressure on MSTR's stock price.
However, Hougan does not anticipate this event will have a substantial impact on market sentiment towards Strategy or its share price. He argued from his experience that such occurrences historically have had less impact than initially expected.
"My experience from watching index additions and deletions over the years is that the effect is typically smaller than you think and priced in well ahead of time," he stated. Hougan recalled an instance where, despite MSTR's addition to the Nasdaq-100 Index last December requiring index-tracking funds to purchase $2.1 billion of the stock, its price saw minimal movement.